Working with TPAs

A TPA can be a plan advisor’s best friend. But it’s important to understand the various types of TPAs and how to best leverage them depending on the plan profile and size.

Most importantly is finding a TPA with which an advisor has a strong personal relationship and trusts — which is equally true of relations with an advisor’s other key partners: record keepers and DCIO wholesalers.

There are three basic service models for DC plans:

  1. Bundled — record keeper does everything including plan administration and access to investments.
  2. Unbundled — the record keeper provides access to investments but partners with a local TPA to provide admin and consulting.
  3. Open Architecture — The TPA provides admin and record keeping outsourcing access to investment to a third party like Schwab, Fidelity or Matrix.

Which is best? That depends. For simplicity, Bundled might be preferred — as some advisors like to say, there’s “one throat to choke.” Unbundled affords more flexibility, with a local technical professional available for consulting working with owners and executives to maximize benefits. Open Architecture TPAs are usually the least expensive model, providing access to more funds but generally offering less robust technology and sales support. Of the 3,000-4,000 TPA firms, only about 600 provide record keeping services, and fewer than 75 have more than $1 billion under management. The rest are strictly compliance-only TPAs.

The Unbundled model is the preferred model for smaller plans; most of the small market major record keepers partner with local TPAs. When plans migrate over $10 million, Bundled becomes the most popular model, since record keepers are more willing to customize their offerings for larger plans and assign an in-house plan consultant. For plan sponsors that are focused on costs and want ultimate investment flexibility, the Open Architecture model is usually preferred.

The tricky situation can be with so-called “producing TPAs,” or those that also act as advisors. Some advisors do not work with them because they view them as competition. But most producing TPAs, if successful, respect the relationship with outside advisors and go out of their way to accommodate them when a potential conflict arises.

For advisors that want to focus on outcomes, investments and, of course, sales, partnering with a limited number of technically astute TPAs in their area can make a lot of sense. But as with everything in life, the relationship and cultural fit is paramount. And the choice to use a TPA may depend on the size of a plan or the plan sponsor’s particular needs.

Add Your Comments

One Comment

  1. url url'>Ilene Ferenczy
    Posted July 10, 2015 at 11:14 am | Permalink

    It is interesting that a factor that is not mentioned in this article is the flexibility as to plan design and complexity. If the client wants to have the most flexibility in plan design, an unbundled or open architecture approach is almost mandatory, as very few bundled providers have the systems or knowledge to work “outside the box.” I’m a little disappointed that a sister organization to ASPPA would have missed that important distinction.

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